Focus on Bombardier after more executive changes

This report has been updated since it was issued to our E-subscribers last Monday to reflect our new estimate of the return to airborne status for the flight test program.

Bombardier two weeks ago made more executive changes to the CSeries program, replacing the vice president of marketing and other officials. The company said additional changes might be forthcoming—a clear signal that something more is afoot.

Bombardier has been stuck on 203 firm orders for the CSeries for the better part of this year, although the number of orders and commitments has swelled to 513 with a much better than expected Farnborough Air Show. Still, MOUs and LOIs aren’t firm orders with deposits and progress payments, and poor sales of the CRJ, Q400 and business jet divisions combine with the R&D costs of the CSeries to put a huge financial squeeze on the company. Layoffs and cost cutting, along with the management changes, add to the perception that BBD is a company in trouble.

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After-market support becoming key to winning engine orders

Maintenance and power-by-the-hour parts and support contracts are increasingly becoming the deciding factor in deciding which engines and which airplanes will be ordered—it’s no longer a matter of engine price or even operating costs, customers of Airbus and Boeing tell us.

Ten years ago, 30% of engine selection had power-by-the-hour (PBH) contracts attached to them. Today, 70% are connected, says one lessor that has Airbus and Boeing aircraft in its portfolio, and which has ordered new aircraft from each company.

“We’ve seen a huge move in maintenance contracts,” this lessor says.

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PW re-delivering GTF to Bombardier CSeries flight test fleet, airborne program likely next month

Pratt & Whitney has completed a design repair for the Pure Power 1500G used on the Bombardier CSeries Flight Test Vehicles (FTVs) and is re-delivering the engines, Leeham News has learned.

Flight tests are expected to resume in September, likely the first half, according to sources close to the situation. BBD will only say flight tests will resume “in the coming weeks.”

A PW spokesman was equally ambiguous. “We continue to work closely with Bombardier to return the CSeries to flight testing,” the spokesman wrote in an email. “I would also note that the fundamental architecture of the Geared Turbofan engine remains sound.”

The FTVs have been grounded since May 29, when a PW engine on FTV 1 suffered a failure in an oil seal, causing a fire and spewing engine parts into the composite wing of the airplane. The wing is undergoing repairs.

Details of the fix for the FTV engines have not been revealed. But one person familiar with the situation told us that the FTV engine repairs enable the test fleet to return to the air, and that the redesign of the affected area of the engine will be incorporated into a production redesign before the CSeries enters service. Bombardier continues to maintain that the CS100, the first of the two-member family scheduled to enter service, will do so in the second half of 2015. Some aerospace analysts believe BBD will be hard-pressed to meet this schedule, and EIS will slip into early 2016. The larger CS300 was scheduled to enter service six months after the CS100, and it’s unclear if this EIS will continue to have a six month gap.

Bombardier is preparing to resume the flight test program with the four FTVs that have been completed; three more are in assembly.

The Pure Power 1100G for the Airbus A320neo, scheduled to enter service in October next year, will incorporate the production redesign, says the source familiar with the situation. No delay is expected in this program.

Odds and Ends: Dual sourcing; FAA overflight bans; Super Constellation

Dual sourcing: There is always much angst in Seattle among the labor groups and Washington State’s elected officials when Boeing decides to put work outside the state. Much of this angst is because Boeing uses this as a sledgehammer to beat up unions for concessions and the state for tax breaks.

But dual sourcing isn’t really a bad thing. Pratt & Whitney is dual sourcing to avoid a single point of failure, as this article explains. Boeing, of course, has made the same point but it always gets submerged by its heavier-handed tactics. We’ve often made the point that if Boeing wants to set up assembly lines elsewhere, why not use the Natural Disaster Risk Diversion as the reason–and nobody could argue the point (well, they could, but it is a valid concern).

FAA overflights: It’s big news here in the USA, likely far less so in the rest of the world: the racial unrest in the small Missouri town of Ferguson, a suburb of St. Louis, where an unarmed 18-year African-American male was shot six times by a white policeman. Police say the young man attacked a police office. Witnesses say he had his hands up to comply with the officer’s orders. A grand jury will attempt to sort out facts. In the meantime, demonstrations–some peaceful, some not, some with looting–have turned Ferguson into an armed camp of police looking like the Army, in Humvees, battle gear and automatic weapons.

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Odds and Ends: CSeries status; Airbus accident analysis; 737 rate increase; Kenya Air holds Boeing hostage

CSeries Status: Here is an interesting, detailed article from a blogger who follows the Bombardier CSeries more closely than anyone we can think of.

The article pretty well summarizes the issues, although we have this additional color: the fixes have been identified and are being installed and are still in Transport Canada review for approval and the green light to resume flight testing.

Airbus accident analysis: Airbus issued a study that looks at the causes of commercial accidents since 1958. The full report may be found here. The report is intentionally light on text and heavy on charts and graphics, so it’s easy to digest.

737 rate increase: Several media reported yesterday that Greg Smith, CFO of The Boeing Co., told an investors day Boeing is likely to decide this year on a production rate increase for the 737 line beyond the 47/mo previously announced to go into effect in 2017. Well, you read it here first–we reported more than a year ago Boeing was looking at a rate increase to 52/mo and even 60/mo. We’ve had in our estimates the 52/mo by 2018, 2019 or 2020, followed by 60 a year or two later.

Kenya Air: no more Boeings: We know some Airbus customers have long tied route authority to buying Airbus airplanes, and China is notorious for holding Airbus and Boeing orders hostage for political reasons. Kenya Airlines now says it won’t buy more Boeing aircraft unless it gets US route authority, according to this article.

GE analysis post Farnborough

Our wrap up of Farnborough would be incomplete without looking closer at the world’s leading engine supplier, GE Aviation, which together with partners (like SAFRAN in CFM joint venture) garnered more than $36 Billion in orders and commitments during the show. This figure was only significantly bettered by Airbus ($75 Billion) and it came close to Boeing’s $40 Billion. With such level of business the claim by GE Aviation CEO, David Joyce, that the Airbus A330neo engine business was not the right thing for GE as they have more business than then they know what to do with, was certainly no case of “sour grapes”. Read more

Odds and Ends: Some FAS leftovers–a big CSeries order?; EMB lands 60; and more

Farnborough Air Show leftovers:

Big CSeries order coming? Flight Global reports that lessor Macquarie Airfinance is about ready to sign a deal for 50 Bombardier CSeries. If true, this would be a major departure for the lessor, which historically hasn’t placed speculative orders–and it would be a major boost for Bombardier. The Flight Global report doesn’t say if this would be 50 firm or a combination of firm and options. BBD and MAF didn’t comment for Flight. We reached out to MAF and received this response:

“The Flightglobal release was concocted on a rumour and we don’t comment on rumours. You know how it is with lessors. We’re constantly considering every aircraft type that could provide us with value-adding opportunities.”

Bombardier has been selling the CSeries in small numbers, often to second or third tier, and even start-up carriers, a path Boeing took in the early days of the 737-200 program. Airbus relied heavily on lessors for early A320 orders. Boutique lessor LCI was a launch customer for the airplane, and Falko Regional Aircraft Leasing became a customer at FAS.

BBD now has 513 orders and commitments for CSeries.

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Farnborough Air Show, July 17: Orders summary, reflections of the show

Orders continued to trickle in as the Farnborough Air Show winds down (there could be others not listed here).

  • Airbus: Transaero, LOI for 12 A330neos and eight A330ceos; Hong Kong Aviation Capital firms up an order for 40 A320neo and 30 A321neo aircraft, announced at the Paris Air Show last year. Here is the Airbus wrap up press release.
  • Boeing: Summarizes its performance at FAS with this press release; 201 orders and commitments.

Items of interest:

Overall reflections:

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Farnborough Air Show, July 16: MRJ program analysis

After a long drought of orders or even LOIs and MOUs, the Mitsubishi MRJ program saw some life at this Farnborough Air Show.

Sales of Japan’s first commercial airplane since the propeller-era’s YS-11 stalled with orders from SkyWest Airlines, Trans States Airlines and Japan’s ANA.

But at the FAS, Mitsubishi announced an MOU with Eastern Air Lines, a US start-up carrier, for up to 40 and a much smaller order for six from Air Mandalay.

The Eastern MOU can fairly come under scrutiny if for no other reason than the company is a start-up. Little is known about its financial fund raising and the business model–to begin as a charter airline and transition to a scheduled carrier in the highly competitive US Southeast–doesn’t instill a lot of confidence. EAL, named after the old trunk carrier that went out of business in 1991, has also ordered the Boeing 737-800 after initially announcing plans to begin service with the Airbus A320.

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Farnborough Air Show, July 15: Orders summary

Here are the orders and commitments announced today that we saw–there could be others we haven’t seen:

  • Airbus: Avolon (a lessor) ordered 15 A330neos; CIT Aerospace, MOU for 16 A330-900s, five A321neos; SMBC Aviation (lessor), 110 A320neo and five A320ceo aircraft; BOC Aviation, 36 Airbus A320ceo and seven A320neo family 17 of which will be fore the A321 family; AirAsiaX, MOU 50 A330-900s.
  • ATR: Air Lease Corp. purchased seven ATR-72-600s.
  • Boeing: Intrepid Aviation, 6+4 777-300ERs; Air Lease Corp, six 777-300ERs, 20 737-8s; CIT Aerospace, 10 787-9s.
  • Bombardier: One Q400 from Horizon Air; revealed an unidentied customer, Abu Dhabi Aviation, for two Q400s; LOI from Falcon Aviation for five Q400s.
  • CFM: Air Lease Corp. ordered the LEAP-1A for 20 A320neo family aircraft.
  • Embraer: Azul Air, LOI for 30+20 E-195 E2 (and becomes launch customer for this sub-type); Fuji’s Dream Airlines, 3+3 E-175s, a previously unidentified customer.
  • Mitsubishi: six MRJ90s from Air Mandalay.
  • Pratt & Whitney: SaudiGulf Airlines orders the V2500 to power four A320ceos; Philippine Airlines executes a previous LOI to a firm order for the GTF for 10 A320neos; BOC Aviation, V2500 for eight of the A320ceo family listed above; International Airlines Group (Vueling Airlines), V2500 for 30 A320ceo family.
  • Viking Air: Air Seychelles, two Twin Otters.

Items of note:

  • Airbus’ John Leahy says he expects a total of 100 A330neo orders from FAS;
  • BOC Aviation endorsed the launch of the A330neo but didn’t (yet) order any.
  • Boeing said its new 777X will have a cabin altitude of 6,000 ft, the same as the 787, larger windows than its 777 Classic and the A350; features borrowed from the 787 and many that go beyond the 787 passenger experience; and lower noise.
  • Bombardier launched its Q400 Combi, seating 50 passengers and carrying 8,200 lbs of cargo.
  • Steven Udvar-Hazy, CEO of Air Lease Corp, which has a large order book for the ATR-72-600, says, the Q400 is a good aircraft, but “much more expensive to operate” vs ATR. [However, that’s at the Q400’s high cruising speed. If it’s throttled back, the operating costs are said by BBD to be comparable.–Editor.]